Understanding How Financial Advisor Commissions Affect Your Life Insurance Costs and Retirement Savings
- Connect Cape Town
- Dec 13, 2025
- 3 min read
Updated: 6 days ago
When you buy life insurance, the monthly cost might seem straightforward. Yet, a hidden factor often increases what you pay: financial advisor commissions. These commissions can quietly add up over the years, reducing the money you could have saved for retirement. Understanding how these commissions work and their impact on your long-term finances is crucial for making smarter insurance choices and protecting your retirement goals.
How Financial Advisor Commissions Work in Life Insurance
Financial advisors often help clients choose life insurance policies. For their service, they receive commissions from the insurance company. These commissions are usually built into your monthly premium, meaning you pay for them indirectly.
Commission types: Most advisors earn a percentage of your premium, often between 40% to 90% in the first year, then smaller percentages in following years.
Embedded costs: Because commissions are included in your premium, your monthly payment is higher than the pure cost of the insurance coverage.
Renewal commissions: Some advisors continue to receive smaller commissions annually, which keeps your premiums elevated.
This structure creates a conflict of interest: advisors may recommend policies that pay higher commissions rather than the most cost-effective options for you.
The Impact on Your Monthly Life Insurance Cost
The commission portion of your premium can significantly increase your monthly payments. For example, if your base insurance cost is R500 per month, a 50% commission means you actually pay R750 monthly. Over 20 or 30 years, this difference adds up.
Higher premiums reduce disposable income: You may have less money to invest elsewhere.
Less money saved for retirement: The extra cost means fewer funds available for retirement savings.
Potential for shortfall: Over decades, the cumulative effect can create a gap in your retirement nest egg.
Consider a 35-year-old who buys a R500,000 term life policy with a R600 monthly premium. If 50% of that premium is commission, R300 goes to the advisor. Over 30 years, that’s R100,800 paid in commissions alone, money that could have been invested for retirement growth assuming no premuim increases over 30 years.
How Commissions Can Create a Retirement Shortfall
The money spent on commissions is money not invested in your retirement accounts. Even modest monthly savings can grow substantially over time thanks to compound interest.
Example: Investing R30 monthly at a 6% annual return over 30 years grows to about R33,000.
Lost opportunity: Paying commissions instead of investing means missing out on this growth.
Compounding effect: The earlier you start investing, the bigger the impact of lost savings due to commissions.
This shortfall can affect your lifestyle in retirement, forcing you to work longer or reduce expenses.
What You Can Do to Minimize Commission Costs
Awareness is the first step. Here are practical tips to reduce the impact of commissions on your life insurance and retirement savings:
Speak to a Family Officer : Working through your family officer to negotiate commissions and assist with analising different options is vital to your success. The family officer addresses all needs and work on a fee saving model meaning the interest aligned between family officer and you.
Ask for a commission breakdown: Request your advisor to disclose how much of your premium goes to commissions. This is a sensitive subject with the financial advisor and often the commission sacrifice will be minimal as it is their only source of income.
Compare policies: Look at direct-to-consumer options or online insurers that offer lower-cost policies without commissions. Some insurers are cheaper now compared to more expensive on long term. Structuring your policy correctly is important.
Consider term life insurance: Term policies often have lower commissions than whole life or universal life insurance and designed for shorter term needs.
Review your policy regularly: Ensure your insurance still fits your needs and budget.
By reducing commission costs, you free up money to invest in retirement accounts.
Balancing Advice and Costs
Financial advisors provide valuable role, especially for product knowledge. The key is to balance the cost of advice with the benefits and have a family officer by your side to negotiate and look for the most suitable cover and price for family.
Choosing the right advisor and insurance product can protect your finances and retirement plans.
Consult with Family Officer
Family Officers provide innovative solutions to empower families alongside their financial partners. They serve as the connection between families and financial professionals (such as accountants, financial advisors, and lawyers), ensuring families make informed decisions. Our model is based on the percentage of savings we achieve, allowing us to manage all your communications from a centralized location and assist with strategic planning for family and administrative functions without costing you more.
